There Are Lots of Credit Card Fees You Pay And Never Even See
George Boelcke CCP
June 27, 2007
For the year ending in March, just with our Visa cards, we charged more than 25 billion transactions totaling over $1.4 trillion in purchases. That’s some serious debt, interest and payments. But that’s not all – there’s way more profit for credit card issuers than just all those fees, charges and interest us consumers pay!
After all, the people who accept our credit cards also pay a big chunk of money for the privilege of taking our credit cards. That’s where some serious profit is for card companies. But what actually happens when our card gets swiped through the merchants’ terminal?
Well, every retailer that accepts credit cards pays a fee to be able to accept credit cards. They’re called merchant fees and average around 2.1%. While you and I don’t see it, this discount, or cost to the business, is certainly built into the retailer’s cost of doing business.
When a sale is made by credit card, the merchant has that fee deducted from the total amount of the transaction and gets paid the rest of the funds, usually the next day. So on a $100 charge, the store is paid about $97.90. Smaller stores might have a higher fee, while large retailers, who do a lot of credit card volume, get a better (lower) discount fee.
In our $100 example, this $2.10 fee is the total profit for the credit card companies and is split three ways: About $1.70 goes to the bank which issued the credit card the customer is using, 38 cents goes to the bank whose terminal is in the store to processes the transaction, and 2 cents of it goes to Visa or MasterCard. Small wonder there are tens of thousands of different credit cards competing for a place in your wallet. After all, when you’ve got their card, the profits keep rolling in with every charge you make, even if you pay off the balance every month!
And those profits are generated tens of tens of millions of times each day, each in less than two or three seconds. From swiping your card, to contacting the computer of your actual card issuer, looking at your account, approving it, sending it back to the terminal where you’re standing, and printing off the charge slip to sign. In fact, Visa’s computer can process over 7,500 transactions each second!
Now consider the volume of a company like Wal-Mart, who processes over 140 million credit and debit payments each month, for which they also pay these fees. Small wonder Wal-Mart will keep making an effort to operate a bank, in order to be able to process credit card and debit transactions in-house.
For merchants, there are lots more fees of various things, ranging from the terminal rental to fees on debit cards, bank service charges to maintain their deposit account for credit cards and others. Do they have a choice, though? Not a chance. After all, their only way to fight back is to stop refusing to take credit cards. And that is next to impossible when you and I keep charging more and more instead of less.
Or in the words of a former credit card executive: “Our real enemy is cash!” How true – but then, card issuers are doing really well teaching us not to use cash, aren’t they? Could you do without your credit cards for a month? Prove it! Once you cure your addiction to them, you’d be amazed how quickly you’ll start becoming debt free. You see – if their enemy is cash – that makes cash your best friend!
After all, the people who accept our credit cards also pay a big chunk of money for the privilege of taking our credit cards. That’s where some serious profit is for card companies. But what actually happens when our card gets swiped through the merchants’ terminal?
Well, every retailer that accepts credit cards pays a fee to be able to accept credit cards. They’re called merchant fees and average around 2.1%. While you and I don’t see it, this discount, or cost to the business, is certainly built into the retailer’s cost of doing business.
When a sale is made by credit card, the merchant has that fee deducted from the total amount of the transaction and gets paid the rest of the funds, usually the next day. So on a $100 charge, the store is paid about $97.90. Smaller stores might have a higher fee, while large retailers, who do a lot of credit card volume, get a better (lower) discount fee.
In our $100 example, this $2.10 fee is the total profit for the credit card companies and is split three ways: About $1.70 goes to the bank which issued the credit card the customer is using, 38 cents goes to the bank whose terminal is in the store to processes the transaction, and 2 cents of it goes to Visa or MasterCard. Small wonder there are tens of thousands of different credit cards competing for a place in your wallet. After all, when you’ve got their card, the profits keep rolling in with every charge you make, even if you pay off the balance every month!
And those profits are generated tens of tens of millions of times each day, each in less than two or three seconds. From swiping your card, to contacting the computer of your actual card issuer, looking at your account, approving it, sending it back to the terminal where you’re standing, and printing off the charge slip to sign. In fact, Visa’s computer can process over 7,500 transactions each second!
Now consider the volume of a company like Wal-Mart, who processes over 140 million credit and debit payments each month, for which they also pay these fees. Small wonder Wal-Mart will keep making an effort to operate a bank, in order to be able to process credit card and debit transactions in-house.
For merchants, there are lots more fees of various things, ranging from the terminal rental to fees on debit cards, bank service charges to maintain their deposit account for credit cards and others. Do they have a choice, though? Not a chance. After all, their only way to fight back is to stop refusing to take credit cards. And that is next to impossible when you and I keep charging more and more instead of less.
Or in the words of a former credit card executive: “Our real enemy is cash!” How true – but then, card issuers are doing really well teaching us not to use cash, aren’t they? Could you do without your credit cards for a month? Prove it! Once you cure your addiction to them, you’d be amazed how quickly you’ll start becoming debt free. You see – if their enemy is cash – that makes cash your best friend!